UPDATE 1-Chipmaker TowerJazz slides after revenue forecast misses expectations

(Adds CEO comments, share reaction)

TEL AVIV, July 26 (Reuters) - Israeli chip manufacturer TowerJazz was the biggest faller on the main Tel Aviv index on Thursday after its third-quarter revenue forecast missed analysts’ expectations, hurt by weakness in orders from mobile phone customers.

The company expects third-quarter revenue to fall within a range of 5 percent above or below $335 million, it said, against analysts’ expectations of $360.5 million, according to Thomson Reuters I/B/E/S.

“For the third quarter, we continue to see weakness in the mobile sector with recent reductions in customer demand,” Chief Executive Russell Ellwanger said.

TowerJazz has seen “some pullback in the mobile market” in the past few weeks that was not forecast just a month ago, Ellwanger told Reuters.

Some customers within the mobile space “recently decreased their Q3 orders”, Ellwanger said. “It’s a big band of customers, so it appears it’s a weakness in the market,” he said, though he added he won’t know for sure until he sees industry reports.

TowerJazz’s Tel Aviv-listed shares were 7.3 percent lower at 1027 GMT, while the benchmark Tel Aviv 125 index was up 0.3 percent.

The company is forecasting record revenue in the fourth quarter, with sales expected to be lifted by an increase in its capacity to manufacture silicon germanium chips used in high-speed data transfer.

It is targeting record fourth quarter revenue of about $360-$380 million, versus analysts’ estimates for $381 million.

Customer demand for silicon germanium is very high and still growing, TowerJazz said. Given that mid-to-long-term demand exceeds the company’s newly acquired capacity, it has invested in additional capacity at its facility in Newport Beach, California, it said, which is targeted to come on line in the first quarter of 2019.

TowerJazz, which specialises in analogue chips used in cars, medical sensors and power management, earlier reported second-quarter results in line with expectations. Its diluted earnings per share excluding one-time items stood at 41 cents in the second quarter, down from 53 cents a year earlier. Revenue fell to $335 million from $345 million.

The company was forecast to earn adjusted EPS of 40 cents on revenue of $335 million, according to Thomson Reuters I/B/E/S. (Reporting by Tova Cohen; Editing by Ari Rabinovitch and Jan Harvey)